Sri Lanka plans to pay off a debt for past oil imports from Iran through payments in tea, a government minister said.
Sri Lanka’s Plantations Minister Ramesh Pathirana said his country hoped to send $ 5 million worth of tea to Iran every month until a debt of $ 251 million was settled .
Sri Lanka is experiencing a severe financial and currency crisis, which has been exacerbated by the loss of tourism revenue during the coronavirus pandemic.
A member of the country’s Tea Board stated that it is the first time that tea has been used to pay off a foreign debt .
Pathirana clarified that the payment method would not violate US or United Nations sanctions against Iran, because tea is included in the list of foods that can be sent for humanitarian reasons.
The minister also noted that no Iranian bank included in the blacklist of sanctioned institutions will participate in the transaction.
“We expect to send tea worth US $ 5 million each month to reimburse Iran for oil purchases outstanding from the last four years,” Pathirana told Reuters.
“The recommended plan will allow Sri Lanka to save much-needed foreign exchange as the deal with Iran will be made in Sri Lankan rupees by selling Ceylon tea,” he added.
However, a spokesperson for the Ceylon Planters Association, which includes all major Sri Lankan plantation companies, noted that this mode of transaction was a “patchwork solution by the government.”
“This does not necessarily benefit exporters , as we will be paid in rupees, in a non-free market arrangement that will not provide us with any real value,” added the spokesman, Roshan Rajadurai.
Sri Lanka will have to meet around $ 4.5 billion in debt payments next year, starting with a $ 500 million international sovereign bond payment in January.
However, the country’s foreign exchange reserves fell to $ 1.6 billion at the end of November , according to the latest central bank data.
Central Bank Governor Ajith Nivard Cabraal said earlier this month that Sri Lanka is confident that it will be able to pay “smoothly” all sovereign debt due in 2022.
Sri Lanka produces around 340 million kilos of tea annually. Last year it exported 265.5 million kg, with profits of US $ 1.24 billion in 2020.
Almost 5% of the Sri Lankan population works in the tea sector, mainly picking leaves on the slopes of the mountains and processing the tea on the plantations.